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Europe's Pain, America's Gain

Is economic recovery around the corner, as promised by the leaders of the G8, the group of the world's richest countries that held their annual meeting in Evian, France last week? Many economic stars are indeed aligned for recovery, both in the US and in Europe.

Oil prices are coming down from their highs during the Iraq war and, under plausible scenarios, may be heading for a greater fall. Investors all over the world are emerging from their Brazil-Enron-Iraq jitters. The risk premium is falling, pushing stock prices higher and lowering yields on long-term bonds.

Moreover, the overhang of excess capital that accumulated during the crazy high-tech boom of the 1990's has now been mostly worked out. Investment rates have been low for three years in a row. Now only a few sectors suffer from excess capital accumulation. Firms are ready to invest again.

All good news. But there, alas, the similarities between Europe and America end. Monetary and fiscal policy are working at full throttle in the US, but are muzzled in Europe.